The Costs and Benefits of Hiring an Employee

6a0133f3fc5805970b01bb08493a74970d-320wiMost family child care providers who hire employees do so primarily because they can expand their program and care for more children.

But, there are a number of costs and benefits that should be considered before taking this step.

First, let’s look at the benefits: Increased quality of care that an additional adult can bring, another adult you can talk to, the ability to help someone who needs a job, and increased flexibility that allows you more control over your schedule.

There is also a downside when you hire an employee.

You must pay a number of federal and state payroll taxes, purchase workers’ compensation insurance, and file a series of tax forms. Because you are responsible for virtually anything your employee does, you must take the time to properly hire, supervise and possibly fire employees.

The Financial Side of Hiring an Employee

Will hiring an employee actually increase your profit?

The answer depends on how many more children you enroll after hiring an employee.

To take a close look at this, providers should examine the additional costs of hiring an employee as compared to the additional income on enrolling more children.

Let’s look at an example: Lainie Provider decides to hire an employee at the federal minimum wage of $7.25 per hour (your state minimum wage may be higher). Here are here additional weekly costs:

Wages: $7.25 per hour x 40 hours per week (overtime is due for more than 40 hours of work in a week) = $290

Payroll taxes (7.65% Social Security/Medicare tax + .6% federal unemployment tax) = $24

State unemployment tax: varies

Workers’ compensation insurance: varies

Other employee costs (training, supplies, food, benefits, etc.): varies

Total weekly employee costs: $314+

To offset this additional expense, Lainie would have to enroll two additional children at $157+ per week to break even. This doesn’t include the possible additional costs of toys and supplies needed for two more children.

I’ve created an online tool (Hiring an Employee Worksheet) you can use to plug in your numbers and quickly see how much you will need to charge to break even.

This is the beginning of an article I’ve posted on childcareinfo.com. In the rest of the article I further explain the financial issues involved with hiring an employee.

Childcareinfo.com is a community for family child care providers and parents that offers a wide variety of resources including recipes, a blog, and a newsletter.  It serves as a clearinghouse for many online resources (children’s activities, training opportunities, equipment, and more).

Childcareinfo.com was created by Minute Menu to offer free assistance that will help the family child care community grow.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/yooperann/

Money Management smallFor more information about the consequences of hiring an employee, see my book Family Child Care Money Management and Retirement Guide.



Categories: Employees, Record Keeping & Taxes

Leave a Reply

Your email address will not be published. Required fields are marked *